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Sometimes “turn-around” stocks never turn fully around. Companies like K-Mart, Kodak, Drug Emporium and even Sears have demonstrated just how difficult it can be to change the direction of a brand that is faltering and/or reinvent a company after it has lost relevance.
J.C. Penney (JCP - Analyst Report) has been trying to reinvent itself for some time now. The company has been searching for its soul and its place between higher end department store competitors like Macys, Neiman Marcus and Sachs and the discounters like Target, Walmart and Marshalls.
It’s been a year since the struggling department store instituted a drastic plan to get rid of most sales in favor of everyday low prices and dramatically change the look and feel of thier stores. CEO Ron Johnson is working to transform every part of the business from the brands it carries to the store experience, but the overhaul has been more challenging than expected and shareholders are getting frustrated.
Losses and more Losses
At the end of the month (February 27th) JCP is expected to report earnings. According the Zacks ESP, which is registering a negative 130% on an expected loss of 13 cents, it won’t be pretty in all likelihood. In fact, JCP has logged four consecutive quarters of big sales drops and net losses since it implemented its new pricing strategy.
Even though the company has credit available, the big concern is that they won't be able to stem the decline in sales in time to finance the transformation of the stores, if they can even accomplish that successfully.
Analysts Losing Confidence
Shares are down by more than 60% in the last year, yet analysts are still reluctant to step in and buy. JCP is a Zacks Rank 5 and is rated underperform by our team.
The Magnitude of analysts’ estimates has been getting more bearish over the last quarter as projections continue to drop; the average analyst still has JCP rated as a sell.The bottom line is that Penney may very well pull off a miracle and turn itself around, but with the market as healthy as it is and with so many better quality stocks to buy, you might want to save the high risk trades for another day. Perhaps we can re-evaluate JCP once it begins to show signs of stability and growth; you may not catch the bottom, but the potential dangers will be dramatically reduced.
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